Recent media stories have reported on how several senior corporate executives, recently separated from their positions due to corporate controversy, have announced their resignation from outside corporate boards. This serves as a reminder to the governance committee of the benefit of "advance resignation" policies.

The concept behind these policies is to allow the governing board the option of continuing the board service of a sitting director who either changes employment status from that which was held when he or she was nominated to the board, or has been exposed to some form of corporate or legal controversy that could reflect on his or her continuing fitness for service on the board. The policy mechanism requires each director to submit a signed resignation upon the occurrence of certain change of status or circumstance events articulated in board policy. The board or governance committee then has the option of accepting or declining the resignation, as may be in the organization's best interests. The drafting challenge is identifying the specific “status/fitness-level events” that require notification broadly enough to protect board/corporation interests.

Certainly, advance resignation and similar policies can appear somewhat harsh and insensitive. Yet the expectation is that such policies offer benefit by avoiding the difficulty in asking for a resignation, or pursuing a removal, in difficult, fitness-based circumstances (which can certainly arise from time to time). By building into governance policies a mechanism that mandates notification to the board of the occurrence of a status/fitness-level event, the board (and the organization) can be protected against the potential reputational harm associated with having a standing director involved with substantial controversy. It also allows the board the opportunity to retain the director where the circumstances warrant.

Corporate Law and Governance Update

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